FTC 'do not track' plan would cripple some Web giants

NEW YORK (CNNMoney.com) -- The Federal Trade Commission proposed this week that consumers should have a "do not track" option for the Internet, similar to the "do not call" list that exists to block telemarketers.

Sounds great, right? With private data abuses and security lapses constantly popping up in the headlines, the idea of easily taking yourself off the radar might sound appealing.

The FTC's plan calls for a universal add-on piece of software that surfers could install on their Internet browsers to block websites from collecting information about them. The proposal would need congressional approval before it could be enacted as an industry-wide mandate.

On the surface, a "do not track" option sounds like an elegant solution to a growing problem. It's increasingly difficult for consumers to know who is collecting their browsing history and personal information, and what is being done with it. Shifting the privacy-protection burden from consumers to the companies who track information is attractive.

But those in the industry warn that such an overarching policy would put billions of e-commerce and advertising dollars at risk. It could also unleash all kinds of unintended and undesirable effects on the very consumers the FTC is trying to protect.

That's because companies like Google (GOOG, Fortune 500) and Facebook make money by targeting ads to people. It's not the only way those companies make money, but it's a growing aspect of their business model. Marketers are willing to spend lavishly to get their ads in front of people who are likely to buy their products. (See clarification below.)

Though highly targeted ads can spook some consumers, they also serve as the mechanism that make it possible for many websites and applications to be free, including Google's Gmail and Facebook (and, yup, CNNMoney.com).

The FTC's proposal recognized that some targeting is acceptable, and seeks public comment on how to achieve that. But if enforced too broadly, a blanket "do not track" plan would change the way consumers use the Internet. Many take for granted the fact that Amazon.com (AMZN, Fortune 500) stores your credit card information, Yahoo Mail stores your username and password, and Facebook keeps you logged in when you navigate away from the site for a minute. Those handy features would disappear if consumers enabled a blanket "do not track" option.

The Obama administration has a very different privacy solution. The Commerce Department is expected to soon release a framework that Internet companies would voluntarily adopt, but that the government could choose enforce. Its goal would be to map out standards and best practices for using and collecting personal data online.

But "do not track" is not the privacy policy plan that's likely to pass.

"The FTC's intent was go to after companies that use consumers' data without them being aware of it, but a blanket statement won't be effective," says Debbie Williamson, senior analyst at research firm eMarketer. "It would bring e-commerce to a halt, and consumers aren't going to like the results. There's not much chance that these specific proposals would be enacted."

Clarification: An earlier version of this story referred to targeted ads as a "a critical aspect" of Google's business. It's a closely watched growth area, but it is not a large part of Google's current revenue stream.